arab development: challenges and elements for a new vision

Economic and Social Commission for Western AsiaEconomic and Social Commission for Western Asia

ARAB DEVELOPMENT:

CHALLENGES AND ELEMENTS FOR A NEW VISION

Khalid Abu-Ismail

© Copyright 2014 ESCWA. All rights reserved. No part of this presentation in all its property may be used or reproduced in any form without a written permission© Copyright 2014 ESCWA. All rights reserved. No part of this presentation in all its property may be used or reproduced in any form without a written permission

Outline of the presentation

1. How did we get to 2010?2. Where are we today?3. Where do we go from here?


How did we get to 2010?


Of course we can argue a lot about the drivers:

1. Was it poor governance?

2. Was it crony capitalism?

3. Was it too much oil (and related conflicts)?

4. Was it rising poverty and inequality?

5. Was it lack of skills?

6. Was it limited fiscal space?

7. Was it bad economic policy choices?


Growth was led by Oil and services Sectoral composition of rate of growth for: Arab countries

(A), developing regions (B), oil-rich countries (C) and oil-poor countries (D) 1970-2010

(A) (B)

(C) (D)


Arab region is least industrialized region Economic transformation in Arab countries (A), Sub-Saharan Africa (B),

Latin America& Caribbean (C), South Asia (D), East Asia& Pacific (E) and Europe & Central Asia (F)

1970-2009

(A) (B) (C)

(D) (E) (F)


Employment creation happened in low productivity sectors

Components of labor productivity growth 2000-2010


Why? Because formal sectors did not create enough jobs

2000 2001 2002 2003 2004 2005 2006 2007 20080

5

10

15

20

25

30

35

Changes in the rates of informal employment and unemployment in Algeria, 2000-2008

Share of informal employment Unemployment rate


And it also applied to educated job seekers

Egypt: Employment by sector (secondary and upper education)

1980 1990 2000 20120

10

20

30

40

50

60

70

80

90

100

68.9

43.6

23.0 21.3

7.5

9.5

9.6 14.3

15.5

26.1

41.851.2

17.49.3

Public Formal private Informal privateEmployers Self-employed Unpaid family workers


Poverty is in the eye of the beholder

Poverty rates in 2010 based on multiple poverty lines (in 2005 PPPs)0.

2

0.60

... 1

1.25 1.

6 2

2.4

2.8

3.2

3.6 4

4.4

4.8

5.2

5.6 6

6.4

6.8

7.20

...

7.60

...

8.00

...

8.40

...

8.80

...

9.20

...

9.60

... 10

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

World East Asia & PacificEurope & Central Asia Latin America & CaribbeanP0 (%)


Arab countries score highest % change in poverty rates as we move from $1.25 to $2 PLs

AC EAP ECA LAC SAS SSA DR0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

% change

Source: Sarangi, N., Abu-Ismail, K., and Laithy, H 2014.


Did poverty decline from 1990? Yes, for 1.25 and 2$ PLs but not for lower national poverty lines

Maghreb

Mashreq

LDCs

Arab region

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

10.5

23.4

42.6

23.4

18.4

20.3

40.0

22.7

1990 2012Source: UN and LAS Arab MDG Report 2013.


Story on inequality is fuzzy.. Low and stable inequality if you use Gini or share of bottom 40% but macro side of

the story does not corroborate this

The ratio between national per capita household final expenditure from National Accounts and that from the surveys is high and increasing.

1998

2006

2000

2011

1997

2007

2002

2010

2000

2010

2005

2010

Yemen Egypt Syria Jordan Oman Tunisia

0.000.501.001.502.002.503.00

0.74

1.14

1.96

2.62

1.00 1.14 1.16 1.391.82

2.22

1.42 1.45


Other evidence on inequality

1. Alvaredo and Picketty (2014) estimated that the share of top 1 per cent income receivers might exceed 25 per cent of the region’s income (compared to 20 per cent in the United States)

2. Wealth Gini is 0.80 in Egypt fastest rise in inequality (Credit Suisse 2014).

3. Rural-urban inequalities are sharp in some countries

4. Of course if we are talking about inequality in opportunities we get another story altogether. But that’s another debate..


What about the middle class?

• International definitions are quite diverse and produce a mess (MC size range from 2 - 75%).

• We define MC any HHs whose expenditure lies above upper national poverty line (using common WB definition) but whose expenditure on non-essential goods and services is less than the value of that poverty line.

(of course we can argue for the next 2 hours about what is a non-essential good)


MC was single largest economic group before Arab Spring

2009 2006 2011 2007 2007 2010 2005 2010 2010Sudan Yemen Egypt Iraq Syria Jordan Lebanon Tunisia Oman

LDCs MICs UMICs HICs

34.5% 34.8%25.2%

5.5%12.3%

2.5% 8.0% 4.6% 1.4%

12.0%25.0%

23.7%

17.4%

21.3%

11.9%

20.6%

10.9%9.6%

43.4%31.6%

44.0%

60.9%

56.5%

55.0%

56.2%

57.5%

29.8%

10.1% 8.7% 7.1%16.3%

9.9%

30.7%

15.3%27.1%

59.2%

Poor Vulnerable Middle Class Affluent


And their size was largely stable during 2000-2010

2000 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

18.3% 21.8%

21.2%21.8%

47.3%45.1%

13.3% 11.3%

AffluentMiddle classVulnerablePoor


And of course we all know the Arab governance deficit

19961998

20002002

20042006

20082010

2012-1.6-1.5-1.4-1.3-1.2-1.1

-0.999999999999997-0.899999999999997-0.799999999999997-0.699999999999997

politi

ucal

stab

ility

1996 2001 2006 2011-0.75

-0.7

-0.65

-0.6

-0.55

-0.5

-0.45

-0.4

cont

rol o

f cor

rupti

on

• The Arab region lags behind the rest of the world in terms of institutional quality

• 5 of 6 World Bank governance indicators show negative linear trends

• The most striking negative trend is seen in Political Stability, followed by Control of Corruption


But there were successes:Arab region has performed better than the global average on most MDGs (% progress from 1990-2010)

Children underweight

Population undernourished

Primary enrolment

Youth literacy

Gender parity, primary

Gender parity, secondary

Child mortality rate

Infant mortality rate

Maternal mortality rate

Births attended by skilled personnel

Access to safe drinking water

Access to basic sanitation

MDGI

-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3

-0.191

-0.189

-0.021

-0.060

0.001

-0.034

-0.152

-0.163

-0.073

-0.249

0.076-0.096

-0.034

-0.125

-0.062

-0.083

-0.003

0.008

-0.392

-0.407

-0.364

-0.207

0.222

-0.146

-0.133

Developing region Arab countries


And guess which countries led the region

OmanEgyptTunisiaSyriaSaudi ArabiaAlgeriaMoroccoJordanComorosMauritaniaPalestineYemenDjiboutiIraqSudanSomalia

-80% -60% -40% -20% 0% 20% 40%

27.9%

27.0%

20.3%

5.8%

3.6%

-4.8%

-7.4%

-17.3%

-30.5%

-32.3%

-35.1%

-35.2%

-37.3%

-44.8%

-59.0%

-70.9%


So was it crony capitalism or was it also the rentier growth pattern due to economic policy choices?

1. Over-obsession with macro-stability.2. Rapid uncritical privatization and trade liberalization3. FDI in areas with low social returns4. No healthy bounce back of the private sector,

including low rates of investment. 5. Little “trickle down” (shares of wages in GDP

significantly reduced)


Where are we today?


Our assessment of where we are depends on the lens we use:

HDI an exampleQ

atar

Saud

i Ara

bia

UA

E

Bah

rain

Kuw

ait

Om

an

Jord

an

Alg

eria

Tuni

sia

Egyp

t

Iraq

Mor

occo

Mau

ritan

ia

Yem

en

Djib

outi

0

20

40

60

80

100

120

140

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

26 28 30 34 36 40

58 6272

8091

96

121 1241310.85

0.840.83

0.820.82

0.790.75

0.730.72

0.690.66

0.63 0.50

0.500.47

HD

I 201

3 R

ank

(HD

I Ran

k)

HD

I 201

3 Sc

ore

(HD

I Sco

re)Very High

Human Devel-opment

High Human Development

Medium Human De-velopment

Low Human Development


What if human development is looked upon slightly more broadly: new HDI

Pillar Indicator Weight in pillar

Economic GNI per capita, PPP (constant 2011 international $) 50.0%

10-year coefficient of variation on GDP pc growth 50%

Social Mean years of schooling (years) 25%

Expected years of schooling (years) 25%

Life expectancy at birth (years) 25%Disability adjusted life years (DALY) 25%

Governance Voice and accountability 33.3%Government effectiveness 33.3%Rule of law 33.3%

Environment Ecological footprint (hectares per cap) 100%

Access to Electricity 25%Living conditions Access to internet 25%

Access to clean water source 25% Access to sanitation 25%

Total Countries (2013) 144Arab Countries (2013) 15


Dev challenges may be more serious than we think and country rankings may be very different

Qatar

Oman

Tunisia

Jordan

Bahrai

n

United Arab Em

irates

Morocco

Saudi A

rabia

Kuwait

Egypt, A

rab Rep.

Algeria

Iraq

Yemen, R

ep.

Djibouti

Maurit

ania

0

20

40

60

80

100

120

140

0.000.100.200.300.400.500.600.700.800.90

36 3846 50 52 58 60 63 67

74 75

97106 107

1220.76

0.760.75

0.730.73

0.71

0.70

0.690.68

0.65

0.65

0.550.50

0.500.44

HDI Rank HDI Score

High Human Development

Low Human Development

Medium Human Development


Conflict is a game changer

• Countries facing conflict and other with tremendous development challenges: Syria, Yemen, Sudan, Mauritania, Iraq, Palestine, Libya, and Somalia.

• Countries facing economic and political spillovers: Tunisia, Lebanon, Egypt and Jordan

• Overall growth is low and declining

• Extreme poverty is rising and middle class may have shrunk by 15% as a result of conflict and economic recession


Destruction in Syria: 170 Billion GDP Losses

2010 2011 2012 2013 2014 20150

102030405060708090

63.6 67.370.9 75.1 79.5

60.256.1

40.333.5 29.6 27.2

Planned real GDP according to the eleventh 5-years plan prior to the con-flictEstimates of real GDP during the conflict

GDP total losses 169.7


Consequences of destruction in Syria

• Real GDP contracted by 55%.

•Destruction of housing and infrastructure of around 89.9

billion dollars.

•Total cultivated area fell by 60%.

•33% of population inside Syria are food insecure

•Poverty rates, using the UPL, increased from 30% to over

80%.

•Primary enrolment ratios fell from nearly 100% to 60%.


Fiscal space is more constrained

• Most non-oil-rich countries are experiencing huge fiscal deficits due to the recent drop in oil prices.

• The growth financing requirements during 2015-2030 are estimated at $3.6 trillion not to mention more than 0.5 trillion for reconstruction.

Current account balances in oil-exporting countries (% of GDP)


Where do we go from here?

© Copyright 2014 ESCWA. All rights reserved. No part of this presentation in all its property may be used or reproduced in any form without a written permission

The state of play and why it cannot last

•The Vision 2030 report examines the repercussions for the Arab region if the current situation remains unchanged – the business-as-usual scenario.

•It also provides an alternative vision of hope for the Arab world in 2030 – the vision scenario - and charts a course for achieving it.

© Copyright 2014 ESCWA. All rights reserved. No part of this presentation in all its property may be used or reproduced in any form without a written permission

A new inclusive development model

•At the heart of Vision 2030 is the idea of a developmental State to achieve the five strategic goals;

1. Peace and security2. Better Governance3. Structural transformation and resource sustainability4. Human development and social justice 5. Regional integration


end conflict..

ADO focuses on Arab Israeli and Syrian conflicts.


Governance should be the starting point yes

Institutional strength, human rights and rule of law

Human Rights are fundamentals

1. Strong state institutions leading to good overall governance quality Public accountability reforms, improve the governance of state-owned enterprises; stimulate

labour markets; foster entrepreneurship and a business climate with reliable rules and regulations, open budget process, etc.

2. Development friendly political systemsUnbiased rule of law (including for the ruler), strengthening checks and balances, improving capacity of the state, and gradually moving to a more inclusive political system

3. Participatory politicsOpen avenues for interaction between policy-makers and citizens, formal and informal

4. Respect for Human rightsEstablishment of independent national human rights commissions where these do not yet exist

5. Frameworks for transitional justiceLegal frameworks for truth and reconciliation commissions, judicial and non judicial processes of truth seeking, punishment, amnesty and reparations


But governance reform has to be tied to a new economic model based on structural transformation with sustainable

environment solutions

1. Can we replicate the macroeconomic and sectoral policies of East Asia? • Model assumes reduction in transport cost, increase in labor

productivity, incentives and subsidies (industrial policy incentives). Growth reaches 6% versus BAU of 3% and unemployment shoots down.

2. Water and energy solutions• Efficiency in usage, water pricing, water desalination and reuse, water

governance, harnessing renewable energy and phasing out fossil fuel subsidies, nuclear power plants.


Political stability with good governance and structural transformation paves way to Human Development and

Social Justice which itself feeds back into more stability and better governance..

Promoting human development:

Ensuring quality health care

Advancing quality education towards building knowledge

society

Boosting agricultural productivity and food security

Promoting gender equality


And all of this can be reinforced and accelerated by regional integration

There needs to be an Arab-Arab discussion about a new regional vision.

Do we want an Arab region with freedom of movement of commodities, labor, and capital by 2030? If so what are the implications on current macroeconomic trade policies and what needs to be done?

Now is probably the best time to begin this discussion

Economic and Social Commission for Western AsiaEconomic and Social Commission for Western Asia

THANK YOU

arab development: challenges and elements for a new vision

Government & Nonprofit